2002 Ruling 2002-0149133 - XXXXXXXXXX

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

1. Will the addition of the payment options to the Supplementary Pension Plan result in the Supplementary Pension Plan Plan, or any part of the Supplementary Pension Plan Plan, being characterized as a "salary deferral arrangement" as defined in subsection 248(1) of the Income Tax Act (the "Act")?

2. Will the benefits payable from the Supplementary Pension Plan Plan be included in a member's income for tax purposes pursuant to subparagraph 56(1)(a)(i) of the Act when received by the member?

Position: 1. No 2. Yes

Reasons:

1. Does not meet the definition of an SDA since specifically excluded under (a) of the exclusions in the definition.

2. The proposed payments meet the definition of "superannuation or pension benefit" as defined in subsection 248(1) of the Act.

XXXXXXXXXX 2002-014913

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

Re: XXXXXXXXXX (the "Organization")
Advance income tax ruling request

This is in reply to your letters of XXXXXXXXXX in which you request an advance income tax ruling on behalf of the Organization. We also acknowledge the information provided in subsequent correspondence and during our various telephone conversations in connection with your request (XXXXXXXXXX).

We understand that, to the best of your knowledge and the Organization's knowledge, none of the issues involved in the ruling request

(i) is in an earlier return of the Organization or a related person,

(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of the Organization or a related person,

(iii) is under objection by the Organization or a related person,

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(v) is the subject of a ruling previously issued by the Directorate.

The following documents were submitted in conjunction with the ruling request:

a) a copy of the XXXXXXXXXX (the "Registered Pension Plan");

b) a copy of the XXXXXXXXXX (the "Supplementary Pension Plan");

c) a copy of XXXXXXXXXX (the "RPP Amendment").

Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Facts

1. The Organization's address is as follows:

XXXXXXXXXX.

2. The Organization is serviced by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.

3. The Registered Pension Plan came into force effective XXXXXXXXXX and was subsequently amended by the RPP Amendment effective XXXXXXXXXX. The purpose of the Registered Pension Plan was to establish a plan under which retirement benefits will be provided to members of the Organization. A member qualifies for benefits under the Registered Pension Plan if he or she has completed at least XXXXXXXXXX years of service or if he or she was elected to the Organization and continued as a member until that Organization was dissolved. A member entitled to benefits may elect to begin receiving unreduced benefits upon attaining pensionable age or reduced benefits prior to attaining pensionable age.

4. The Registered Pension Plan is registered pursuant to section 147.1 of the Act and bears registration number XXXXXXXXXX. Under the Registered Pension Plan, an annual pension is paid to a member when he or she reaches pensionable age. The Registered Pension Plan is a defined benefit plan with a benefit formula of XXXXXXXXXX% of the XXXXXXXXXX-year average pensionable remuneration multiplied by years of service, subject to the defined benefit limits under the Act.

5. The benefits provided under the Registered Pension Plan are funded by contributions by the members and the Organization. A member is required to make annual contributions of XXXXXXXXXX% of the lesser of the yearly pensionable remuneration and the "defined benefit limit" (as defined in subsection 8500(1) of the Income Tax Regulations (the "Regulations") divided by XXXXXXXXXX%. The member's contributions are subject to the limits set out in paragraph 8503(4)(a) of the Regulations.

6. The Organization contributes the amounts determined to be necessary to fund the benefits earned by the members, subject to subsection 147.2(2) of the Act. Under the Registered Pension Plan, a fund is established into which contributions are made and out of which benefits under the Registered Pension Plan are paid. The fund is held by XXXXXXXXXX (the "Pension Administrator") pursuant to a trust agreement between Pension Administrator and the Organization.

7. The purpose of the Supplementary Pension Plan is to establish an unfunded pension plan to supplement the retirement benefits that can be provided to members under the Registered Pension Plan. The Supplementary Pension Plan is not registered under the Act.

8. The Organization will use monies from its XXXXXXXXXX to pay benefits to members under the Supplementary Pension Plan. For financial accounting purposes, the Organization has set aside funds in an account to fund its liabilities under the Supplementary Pension Plan. To maximize its return on the funds held in this account, the Organization has engaged a third party investment manager to provide advice with respect to investment decisions. At all times, the Organization will retain ownership of all of the funds set aside in the account. The Organization will not contribute amounts to a trust in respect of the Supplementary Pension Plan and the Organization will ensure that the assets set aside in the account shall not constitute trust property. The funds held in the account will not be subject to the direct claim of any of the members, or other persons, who are entitled to receive benefits under the Supplementary Pension Plan and the funds will be subject to the claims of the Organization's general creditors.

9. A member may make a one-time election to participate in the Supplementary Pension Plan by filing a form in accordance with the provisions of the Supplementary Pension Plan. If a member elects to participate in the Supplementary Pension Plan, he or she must make increased contributions under the Registered Pension Plan. Section XXXXXXXXXX of the Registered Pension Plan, as amended, provides that where a member has elected to participate in the Supplementary Pension Plan, he or she must make annual contributions of XXXXXXXXXX% of the lesser of his or her yearly pensionable remuneration and the defined benefit limit divided by XXXXXXXXXX%.

10. The benefit formula under the Supplementary Pension Plan is XXXXXXXXXX% of the XXXXXXXXXX-year average pensionable remuneration multiplied by years of service minus the amount of benefits paid from the Registered Pension Plan. Under subsection XXXXXXXXXX of the Supplementary Pension Plan, a member who elects to participate is entitled to receive an annual pension payable monthly during the lifetime of the member.

Proposed Transactions

11. The Organization wishes to amend the Supplementary Pension Plan to provide a member with additional options for the receipt of his or her retirement benefits under the Supplementary Pension Plan. In particular, the Organization would like to add a lump sum option and an option allowing "term-certain" payments, namely payments over a specified period of time rather than payments for the lifetime of the member. The member would then be able to elect from one of the following options:

(a) to receive his or her benefit in equal periodic payments for the lifetime of the member;

(b) to receive the commuted value of his or her benefit as a lump sum payment; or

(c) to receive his or her benefit in equal periodic payments payable over a shorter time period (e.g., over the same number of years that he or she was a member).

Purpose of the Proposed Transaction

12. The purpose of amending the Supplementary Pension Plan to include such a provision is to provide a member with greater flexibility with respect to the timing and the amounts of the payments of his or her supplementary retirement benefits. This would have no impact on the timing and amount of the payments of a member's benefit under the Registered Pension Plan. Under the Registered Pension Plan, a member receives an annual pension payable monthly for his or her lifetime.

Rulings

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, our rulings are as follows:

A. Provided that Supplementary Pension Plan is not a "salary deferral arrangement" as defined in subsection 248(1) of the Act, the addition of the payment options will not result in the Supplementary Pension Plan becoming a "Salary Deferral Arrangement".

B. The proposed payments under the Supplementary Pension Plan will be pension income under sub-paragraph 56(1)(a)(i) of the Act when received by the member.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch